The Breakdown - 11 Numbers That Tell the Story of the Economy Right Now

Episode Date: August 8, 2020

Mainstream financial media loves reporting the stock market like it's the only economic indicator that matters. On this episode, NLW breaks down 11 numbers that together tell a much more complete story, including: Record price of gold Square’s bitcoin revenue National debt as a percentage of GDP Fall of the Turkish lira  Price of coffee, sugar and cocoa Housing in auto demand Anti-Chinese sentiment in the U.S.

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by crypto.com, BitStamp, and nexo.io, and produced and distributed by CoinDesk. What's going on, guys? It is Friday, August 7th, and today I'm doing something a little bit different. Over the last three days, I have pummeled you with so many big ideas and questions. Can social media be redeemed as a force for good in society, or is it just going to tear us apart even further? Is there a big shift to a new stagflation environment that's going to have major consequences for us? Is there a possibility of a post-central bank world, or is this the system forever?

These are literally just the questions that we've been talking about for the last three days. So instead of hitting you with more big thoughts today, I thought I'd hit you with some numbers. This episode is going to be 11 numbers that I think tell the story of the world economy right now. You'll notice I'm not doing a brief, and that's because I'm actually recording this on Thursday, but I think that the 11 numbers should get you through just fine. Let's start with the first number, which is 2000. That is the magic number psychological barrier gold price that was breached last week, and since that number was breached, we've had five days in a row of record highs.

Interestingly, and I think really importantly, the narrative at least is that this is not just the same old gold bugs seeing a little bit of a bump in their holdings. This might reflect a different conversation happening at big institutions, particularly with regard to the question of whether gold can play a role that treasury bonds and other types of government debt might once have. We are in a negative real interest rate world, and because of that, some traditionalists are looking around and wondering whether gold can play a similar safe haven role, but with the potential of some upside. Now, if you've listened carefully on this show, I've had people who both embrace that point of view, as well as others who are more skeptical of how quickly gold can actually replace or something. supplement even treasuries and government bonds as a part of the portfolio of these big institutions, but I still think it's interesting to see how much that narrative is changing.

The second number that explains the economy is $875 million, and that is Square's Bitcoin revenue for quarter two. That is a growth of 186% quarterly, 600% year over year, and it suggests that more people are coming in through the mainstream. Squares Cash app, of course, being one of the most preferred solutions for mainstream normies to get into this space in the first place. I think that this number, this argument, and this interpretation of this number are validated by another number, which is 16.6 million addresses that, according to Glass Note, are holding $10 or more of BTC. That's up 14% from the previous high of $14.5 million in January 2018,

which again suggests that there's this new base of, for a new bull market. The third number on our list is 92 to 93, and that is, of course, where the DXY is hovering. The DXY is the dollar index, and it's hard not to draw the comparison between the increase in gold and the increase in Bitcoin with the decline of the dollar. The DXY is down from 97-ish in early July, and down from a high of 102 in March and April. There are a lot of different interpretations of the dollar and the DXY specifically, but it's still hard to ignore the fact that gold, Bitcoin, and, as we're about to see in a few numbers, commodities are going up at the exact same time the dollar is going down.

Another thing that's hard to ignore is our fourth number, 136%. That is the national debt as a percentage of GDP, and it's up from about 103% at the beginning of the year. It had been hovering around 100% since 2011, and throughout the 20th century was not even close to that high. This growing national debt is part of a story that has some people wondering and worrying about the state of the U.S. economy and its leadership role in the world, and more specifically, the dollar. Still, the dollar is not the only currency that's hurting, and the emerging market story is far from clear right now. You have certain emerging market currencies that are performing well against the dollar, but a lot of the dollar, but a lot of the

that are struggling as well. The Turkish lira has declined against the dollar by 18% on the year and by 3% alone on Thursday, and this is after an extremely aggressive program that some have likened to a nationalization of the foreign exchange market and billions being spent, GS estimates 65 billion has been spent by the Turkish government on trying to keep the lira from falling. Other emerging markets like Brazil have allowed their currencies to fall, but Turkey has tried really hard to keep it up and it's just not working. Now, the Turkish currency isn't as extreme as something like we've seen in Lebanon, but it is still a worrying sign for that country,

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Our sixth number that tells the story of the economy is actually a set of numbers that are all around commodity. Lumber was up 8.2% last week and 35.7% in the last month. Coffee was up 9.7% last week and 17.8% last month. Sugar was at 10% last week and 5.7% last month. Coco was at 7.9% last week and 9.8% in the last month. To me, why this is so notable is that our conversation about inflation is so reliant on the charts that we lose the fact that inflation shows up in people's wallets

they actually experience it. And I understand why the CPI measure doesn't include things that people have to buy anyways. But still, when it comes down to whether someone is feeling like and experiencing inflation in their lives, things that they have to buy every day like coffee are a huge indicator. The seventh number in our 11 that tell the story of the economy has to do with jobs and is like number six a set of numbers. The first one is 167,000. That was the jobs growth in July, according to the ADP report, which was much lower than the 1.2 million expected, and certainly much lower than the 2 million or more that were added in June.

These numbers suggest what we've all experienced and seen, which is a return of COVID-19 over the last month and increasing insecurity for businesses in that context. Now, the flip side of that is that on Thursday we got new jobless claims numbers, and these were a little bit better than expected. Continuing claims were at 1.19 million, which were down nearly 250,000 from the week before. Continuing claims were down 844,000. That really reversed the trend that we had seen the week before of all of a sudden those numbers going up in a big way again. In other words, we had seen decline sequentially to, if not good numbers, at least numbers that were going down, but over the last two weeks, those continuing claims had started to

grow again, as well as the initial claims. Taken together, maybe this means that we did see a big reset of business as COVID kind of surged back again, but perhaps that's starting to settle off. Ultimately, the missing number here is the one that's coming out on Friday, and again, I apologize I'm recording this on Thursday. That's the Bureau of Labor Statistics July Jobs Report. That will tell us another piece of information. The eighth number slash numbers on our list of the 11 that tell the story of the economy are 13 and 37.

13 is the number of years that it's been since we've had a pace of new home sales this fast. Yes, housing has been one of those areas that has done very well despite all this challenge, and perhaps in some ways because of it, you have more and more people who are trying to get out of cities than you ever have before, and that shift plus, of course, record low mortgage interest rates has led people to actually make those big home moves. The 37% is the increase in employment in the motor vehicle industry since April, which, while still 12% off of February, is a reflection of the fact that like homes, auto sales are a bright spot in this economy. Number 9 is $4.48 billion, and that is the total locked in decentralized finance. Earlier in this list, I gave you some of those Bitcoin numbers, and I think one of the interesting arguments is that we might be headed towards a twin bull market that,

has two different factors contributing. One is the narrative interest in Bitcoin, and the second is a shift from these sort of dead protocols that came about in the 2017-2018 area into the very much alive decentralized finance space. Now the interesting thing about this 4.48 billion number is that the rate of change is key. We had a long time to hit that first billion in DeFi, then we had a much shorter time, five months to hit from 1 billion to 2 billion, then we only took about a couple weeks to get from 2 billion to 3 billion, and 4 billion was just 11 days or something like that later. All of this suggests that more money is getting into this space, and at least relative to the other things it could be locked up in in crypto, that's probably a good thing.

10th on our list, we can't really talk about numbers that tell the story of the economy without telling the story of some part of the stock markets, and I chose Nasdaq's 11,000 as the number. It's the first time that NASDAQ has reached that number, and really what this affirms is that it's not a surging stock market. It's a story of tech and everything else. Nasdaq is, of course, the market where more tech companies are listed, and it is up 28% on the year while the Dow Jones Industrial Average is still down on the year. It is simply not the case that there is just one stock market that's doing well. Tech stocks specifically are doing well, with some other spots as well that are bright, including probably most notably the vaccine rumor trade, but I think that this

NASDAQ all-time high is a really good reflection of something that's really core to understanding where stocks are as a part of this whole thing. Last up on our list of numbers that tell the story of the economy is 73%. That is the overall percentage of Americans who have an unfavorable opinion of China to only 22% favorable. This is a huge shift for. from just a few years ago when it was only at 47% unfavorable to 44% favorable. This is based on a Pew Research Center study. It's hard not to look at the last month and see one of the most significant and important economic stories being the ratcheting up in a significant way of the rhetoric between the

U.S. and China. And this shows that that rhetoric is roosting in American popular opinion. Even with such clear unfavorable opinion, it doesn't necessarily. mean there's any clear path forward or easy ability to predict what comes next, but it is notable when this U.S.-China relationship has to be one of the most significant, if not the most significant, geopolitical factor in the economy that there is. Anyways, guys, I hope you enjoyed this little number-based Friday breakdown, maybe a little break from the big picture stuff that we've been on all week, but either way, I appreciate you listening, and until tomorrow, be safe and take care of each

other. Peace.